Paul Romer’s Many Hong Kongs

I just got this from Stewart Brand, who organizes lectures at San Francisco’s Fort Mason. Romer is suggesting that less developed countries contract with capitalist nations to set up Hong Kong’s for them. What about the alternative, having capitalist nations let us set up little socialist republics to demostrate an alternative system.

This talk was the first public launch of an idea that Romer has been working on for two years.

His economic theory of history explains phenomena such as the constant improvement of the human standard of living by looking primarily at just two forms of innovative ideas: technology and rules.

Technologies rearrange materials with ingenious recipes and formulas. More people create more technologies, which in turn generates more people. In recent decades technology has enabled the “demographic transition” which lowers birthrates and raises income per person even higher as population levels off.

Rules structure the interactions between people. As population density increased, the idea of ownership became an important rule. A supporting rule for managing violations replaced the old idea of deadly vengeance with awarding damages instead: simply shifting value replaced destroying value. For the idea of open science, recognition replaced ownership as the main event, which means that whoever publishes first is most rewarded, and that accelerates science.

Rules can amplify or stifle technological progress. China was the world leader in inventing new technologies until about a thousand years ago, when centralized dynastic rules slowed innovation almost to a stop.

Romer notes that business keeps evolving as new companies introduce new rule sets. The good ideas are copied, and workers migrate from failing companies to the new and old ones where the new rules are working well. The same goes for countries. Starting about 1970, China took some of the effective rules of Hong Kong (which was managed from afar by England) and set up four special economic zones along the coast operating as imitation Hong Kongs. They worked so well that China rolled out the scheme for the whole country, and its Gross Domestic Product took off. “Hong Kong was the most successful economic development program in history.”

Romer suggests that we rethink sovereignty (respect borders, but maybe import administrative control); rethink citizenship (support residency, but maybe import voice in political affairs); and rethink scale (instead of focusing on nations, focus on cities—on city states like Hong Kong and Singapore.)

Paul Romer proposes that developing countries could invite instant Hong Kongs—new cities in new locations run by experienced governments such as Canada or Finland. They would enrich the country where they are built as special economic zones while also rewarding the distant government that makes the investment of building the new city state and installing a set of fair and productive rules. Over time, as with Hong Kong, the new city is turned over to the host country.

The idea is getting some traction in the developing world. This summer Romer is going public with a Bridge Cities Institute website for further exploration and eventual application of the idea.

One miracle of cities is that they sometimes renew themselves brilliantly. This could be a whole new form of that.

I don’t want to belabor the point, but the only people who were ever any good at colonialism were the British, and even their rule was marked by rank racism in many places. But if you want to take Hong Kong as a model for development, why not also take India or South Africa? They were also British colonies, both have been returned to their home populations, and both have relatively successful economic records (and in South Africa this is true even post apartheid).

The question is this: why focus on cities? Why not let “experienced governments” take over whole countries? We have successful examples of that, right? Doesn’t it make as much sense to let some powerful metropole control a whole country so that it can develop?

Maybe we can also divide the world by papal decree, elect a Holy Roman Emperor, and have battles on the high seas with our square-rigged ships.

This reminds me a lot of franchising in business, where a small and/or lone entrepreneur gets often badly needed aid in the form of a well established and successful system and ingredients, and a vast and sophisticated support network, but the motivated and energetic entrepreneur provides the bulk of the work on the ground. The entrepreneur is also restricted to following many of the rules of the franchiser that are for the purpose of ensuring quality control, efficiency, and success.

This has been an extremely beneficial relationship for a great number of entrepreneurs. It’s a powerfully synergystic concept.

In the case of Romer’s idea, though, you need to be very smart and careful in structuring the details so as not to cause huge opposition due to sovereignty and nationalism issues.

Romer couched his idea in the language of capitalism, but it’s really a much more general proposition: that we need to create a system which will allow our rule sets to evolve dynamically, and within which we can make mistakes and learn from them quickly, and on a small scale, rather than slowly, and nation, or worldwide. I think it’s a good idea, and could be applied in a much broader sense than just economics. Political organization, societal norms, etc. In a lot of ways, our technology has outrun our rules at this point, and we desperately need some way to help the rules catch up.

Peter Hall, former head of the Fabian Society in the UK, advanced a similar “Freeport Solution” in the late 1970s as an idea to breathe life into Britain’s then ailing economy. His proposal inspired the enterprise zone initiatives advanced by conservative governments in the UK and USA during the 1980s.

Since then, Openworld (www.openworld.com) has worked on a range of similar initiatives in areas of poverty and high unemployment. Success-sharing free zones can apply a portion of the land value gains resulting from transparency-enhancing business climate reforms with social ventures, including microvouchers for eLearning and eHealthcare. As statist systems reach their limits, these free zones can pioneering institutional innovations that can replicate and scale far beyond their initial boundaries.